State Actuarial Problems in Unemployment Compensation

Abstract

Under the Social Security Act considerable responsibility is placed upon the individual states to formulate their own provisions for specific benefits and rates of contribution in unemployment compensation. To aid them in this responsibility, there seems to be available a very scanty fund of statistical information directly applicable to the situation in the individual state. The determination of the relationship between contributions and benefits in any new insurance line is necessarily and fundamentally dependent upon guesswork. Unemployment compensation involves the setting aside from income as earned of a given rate of contribution so that when certain types of unemployment arise compensation at some given rate may be paid for some specified period of time. Since the federal tax rate has been determined after a brief two year preliminary period at 3% of the total payroll of those employers with 8 or more employees in 20 different weeks, and since all but io% of the tax is to be credited to the employers in those states which have approved plans in operation, and all of the contribution to the state must go into benefits, it is implied that the provision for benefits is at least 2.7% of payroll, more if the employees contribute in addition. The recommended benefit scale which has been adopted in most of the states provides a benefit of half-pay, with a maximum of $I5 a week. The basis of most investigations is aimed at the determination of a reasonable duration of benefits or, should specified duration also be determined, how much more than the minimum ought to be contributed to make it probable that the unemployment compensation plan will remain solvent. The Committee on Economic Security has indicated, for the guidance of the states, a tentative estimate of the maximum duration of benefits indicated as tenable by their nation-wide surveys: